Essays on Sovereign Default - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Essays on Sovereign Default write by . This book was released on 2013. Essays on Sovereign Default available in PDF, EPUB and Kindle. This dissertation consists of three independent essays on sovereign default. In the first chapter, I develop a quantitative general equilibrium model of sovereign default to account for spillover of default risk across countries. When the collateral constraint for investors binds due to a decrease in the value of collateral, triggered by a high default risk for one country, credit constrained investors ask for liquidity premiums even to countries with normal fundamentals. This increase in the cost of borrowing increases incentives to default for the other countries with normal fundamentals, further constraining investors in obtaining credit through a decrease in the value of collateral. The quantitative results show that this model can generate spillover of default risk across countries. The essay in the second chapter introduces endogenous capital accumulation to a quantitative model of sovereign default based on Eaton and Gersovitz (1981). With a production technology in the model, output and interest rates are jointly determined by the interaction between a sovereign government who can optimally default and foreign creditors taking into account default risk. Adding investment enables the model to generate unique economic dynamics similar to those observed around emerging economies' default crises: (1) Emerging economies' debt crises display a boom-bust pattern. (2) A non-negligible fraction of sovereign defaults occur in good times. The essay in the third chapter explains why emerging economies borrow abroad in foreign currency. We present a two-period model in which foreign lenders offer a small open economy an optimal self-enforcing contract in which borrowing is denominated in borrowers' currency. Taking into account the government's incentive to inflate away the debt, the optimal lending contract provides consumption insurance for the economy in that the contract allows the economy for inflation in bad times but asks for deflation in good times. As the variance of income shocks for the economy increases, it gets more difficult for the contract to satisfy the incentive compatible constraints at the good income state. The numerical results are consistent with the fact that emerging economies with high income volatility suffer from "Original Sin".
Essays on Sovereign Debt and Default
Essays on Sovereign Debt and Default - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Essays on Sovereign Debt and Default write by Jarrod E. Hunt. This book was released on 2014. Essays on Sovereign Debt and Default available in PDF, EPUB and Kindle. This dissertation is comprised of two essays focused on the central theme of sovereign default. In the first essay, I detail a method to improve forecasting models of sovereign default by evaluating the impact of a country's composition of debt. For my second essay, I assess the long-horizon impact of a sovereign default episode on a country's economic volatility. A country's external debt relative to gross domestic product is positively associated with the probability of being in default. Aggregate measures of external debt are commonly used for this type of risk analysis. However, based on the details of each loan, there are numerous subsets of external debt. Using a dataset of 32 developing countries from 1971-2010, I find that short-term debt, commercial bank loans, and concessional debt owed to other countries are the categories responsible for the positive relationship between the aggregate and the probability of being in default. In addition to isolating the categories driving the relationship between total external debt and sovereign default, I distinguish between the associated impact of each debt category on the probability of entering default and the probability of prolonging default. This is an important distinction as some subsets, such as bonds and multilateral concessional debt, are only related to the probability of entering default, while others, such as the use of IMF credit, are only significant when a country is already in default. Additionally, I find that short-term debt, commercial bank loans, and concessional bilateral debt positively affect both the probability of entering default as well as the probability of remaining in default. Focusing on the composition of external debt provides a more complete picture of the effect of debt on the probability of default, allowing for more precise forecasts of default probabilities. In my second chapter, I evaluate the impact of sovereign default on the volatility of gross domestic product, a relationship related to two strands of literature: one focused on the impact of sovereign default on output and another that evaluates the impact of economic volatility on growth in output. In addition to bridging the gap between the existing strands of literature, the dataset and techniques employed in this analysis offer advantages over those currently in use. First, the use of the Beveridge-Nelson decomposition addresses issues encountered by other, common trend-cycle decomposition methods. Second, this dataset, which spans 1870-2008, includes more sovereign default episodes per country, allowing for a richer region-specific evaluation. Using a dataset of 7 South American countries, I find that the volatility of output decreases following a sovereign default episode. Taking advantage of the considerable longitudinal dimension, I am also able to assess the impact of volatility on economic growth by looking at different sub-periods. I show evidence that from 1870-1959, economic volatility is positively related to growth while from 1960-2008, a commonly used time period in the literature, there is no effect. These findings suggest that volatility's influence on economic growth may change over time.
Essays on Sovereign Default
Essays on Sovereign Default - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Essays on Sovereign Default write by JungJae Park. This book was released on 2013. Essays on Sovereign Default available in PDF, EPUB and Kindle. This dissertation consists of three independent essays on sovereign default. In the first chapter, I develop a quantitative general equilibrium model of sovereign default to account for spillover of default risk across countries. When the collateral constraint for investors binds due to a decrease in the value of collateral, triggered by a high default risk for one country, credit constrained investors ask for liquidity premiums even to countries with normal fundamentals. This increase in the cost of borrowing increases incentives to default for the other countries with normal fundamentals, further constraining investors in obtaining credit through a decrease in the value of collateral. The quantitative results show that this model can generate spillover of default risk across countries. The essay in the second chapter introduces endogenous capital accumulation to a quantitative model of sovereign default based on Eaton and Gersovitz (1981). With a production technology in the model, output and interest rates are jointly determined by the interaction between a sovereign government who can optimally default and foreign creditors taking into account default risk. Adding investment enables the model to generate unique economic dynamics similar to those observed around emerging economies' default crises: (1) Emerging economies' debt crises display a boom-bust pattern. (2) A non-negligible fraction of sovereign defaults occur in good times. The essay in the third chapter explains why emerging economies borrow abroad in foreign currency. We present a two-period model in which foreign lenders offer a small open economy an optimal self-enforcing contract in which borrowing is denominated in borrowers' currency. Taking into account the government's incentive to inflate away the debt, the optimal lending contract provides consumption insurance for the economy in that the contract allows the economy for inflation in bad times but asks for deflation in good times. As the variance of income shocks for the economy increases, it gets more difficult for the contract to satisfy the incentive compatible constraints at the good income state. The numerical results are consistent with the fact that emerging economies with high income volatility suffer from "Original Sin".
Essays on Sovereign Default
Essays on Sovereign Default - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Essays on Sovereign Default write by Tiago Gomes da Silva Tavares. This book was released on 2015. Essays on Sovereign Default available in PDF, EPUB and Kindle. "This dissertation contributes to literature of International Economics and, in particular, of Sovereign Default with the study of three distinct issues. In the first chapter, I study the role of international reserves in sovereign debt restructuring episodes when fiscal adjustment is costly. This study departs from the observation that highly indebted developing economies commonly also hold large external reserves. This behavior seems puzzling given that governments in these countries borrow with an interest rate penalty to compensate lenders for default risk. Reducing debt to the same extent as reserves would maintain net liabilities constant while decreasing interest payments. However, holding reserves can have insurance benefits in a financial crisis. To rationalize the levels of international reserves and external debt observed in the data, a standard dynamic model of equilibrium default is extended to include distortionary taxation and debt restructuring. This chapter shows that fiscal adjustments induced by sovereign default can generate large demand for reserves if taxation is distortionary. At the same time, a non-negligible position in reserves modifies the debt restructuring negotiations upon default. A calibrated version of the model produces recovery rate schedules that are increasing with reserves, as seen in the data, being also able to replicate large positions of reserves and debt to GDP. Finally, I study how both mechanisms play a key quantitative role to generate such result, in fact, not including them, produces a counterfactual demand for reserves that is close to zero. In the second chapter, the relationship between labor market distortions and sovereign debt crises is explored. It is noted that risk of sovereign debt default has frequently affected both emerging market and developed economies. Such financial crises are often accompanied with severe declines of employment that are hard to justify using a standard dynamic stochastic model. In this chapter, I document that a labor wedge deteriorates substantially around swift reversals of current accounts or default episodes. I propose and evaluate two different explanations for these movements by linking the wedges to changes in labor taxes and in the cost of working capital. With these two features included, a dynamic model of equilibrium default is able to replicate the behavior of the labor wedge observed in the data around financial crisis. In the model, higher interest rates are propagated into larger costs of hiring labor through the presence of working capital. As an economy is hit with a stream of bad productivity shocks, the incentives to default become stronger, thus increasing the cost of debt. This reduces firm demand for labor and generates a labor wedge. A similar effect is obtained with a countercyclical tax rate policy. The model is used to shed light on the recent events of the Euro Area debt crisis and in particular of the Greek default event. Finally, in the third chapter, I develop a debt-to-output decomposition and document that a large fraction of the increase in the debt to output ratio during default is accounted by variations in the exchange rate. Also, using a large dataset on historical sovereign debt crises, it is shown in this chapter that devaluations of the exchange rate during periods of default are positively associated with international investor losses (haircuts) when debt is restructured. These results can be rationalized with the fact that large real devaluation decrease output when measured in foreign goods, thus reducing the availability of resources that can be used during negotiations. This implies that exchange rate fluctuations are an important source of risk in emerging economies affecting, among other things, debt dynamics and restructuring outcomes. As such, I conclude that most of the exchange rate neglect, typical in the sovereign default literature, should be seriously reconsidered"--Pages iii-v.
Why Not Default?
Why Not Default? - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Why Not Default? write by Jerome E. Roos. This book was released on 2019-02-12. Why Not Default? available in PDF, EPUB and Kindle. How creditors came to wield unprecedented power over heavily indebted countries—and the dangers this poses to democracy The European debt crisis has rekindled long-standing debates about the power of finance and the fraught relationship between capitalism and democracy in a globalized world. Why Not Default? unravels a striking puzzle at the heart of these debates—why, despite frequent crises and the immense costs of repayment, do so many heavily indebted countries continue to service their international debts? In this compelling and incisive book, Jerome Roos provides a sweeping investigation of the political economy of sovereign debt and international crisis management. He takes readers from the rise of public borrowing in the Italian city-states to the gunboat diplomacy of the imperialist era and the wave of sovereign defaults during the Great Depression. He vividly describes the debt crises of developing countries in the 1980s and 1990s and sheds new light on the recent turmoil inside the Eurozone—including the dramatic capitulation of Greece’s short-lived anti-austerity government to its European creditors in 2015. Drawing on in-depth case studies of contemporary debt crises in Mexico, Argentina, and Greece, Why Not Default? paints a disconcerting picture of the ascendancy of global finance. This important book shows how the profound transformation of the capitalist world economy over the past four decades has endowed private and official creditors with unprecedented structural power over heavily indebted borrowers, enabling them to impose painful austerity measures and enforce uninterrupted debt service during times of crisis—with devastating social consequences and far-reaching implications for democracy.
